Huawei – Nowhere to run pt. II

Any alternative to Google is an exercise in futility.

• Whatever alternative Huawei comes up with for Google’s digital ecosystem is extremely unlikely to be able to prevent an almost complete loss of market share in markets outside of China.
• Now that Huawei will no longer have access to the Google ecosystem, speculation has turned to what sort to alternative it might be able to come up with.
• Huawei will not lose access to the Android operating system, but Google is no longer able to supply its proprietary services that run on top of it.
• It is in the services that Huawei will no longer have access to where the problem lies.
• Consequently, it is not an alternative to Android that Huawei needs to come up with, it is the services themselves and this represents a massive problem.
• There are two stages to the smartphone purchase decision:
  • First, iOS or Android: The digital ecosystem in developed markets is now so mature that the user purchase decision is primarily driven by “do I live my Digital Life with Apple or with Google?”
  • It is this decision that drives the user to buy either Apple or Android which Huawei has very little to do with.
  • Second, which Android?: Once a decision has been taken to buy Android, then there is the usual price, screen, camera decision t be made but this is secondary to the primary decision that is taken with regards to the ecosystem.
  • It is here that Huawei competes against its peers but there is very little differentiation in what has become a constant race to the bottom in terms of price.
  • This is why it is Apple and Google that make all the money from smartphones leaving the Android handset makers with the scraps.
• Huawei currently ships 50% of its smartphones to markets outside of China and in order to be a contender once the primary purchase decision has been made, these devices must have Google services installed.
• If they do not, then they will not make it past stage one meaning that whatever alternative that Huawei comes up with will have no impact as it has no ecosystem with which to compete against Google.
• One possibility is for Huawei to include a white label app store such as Apptoide on its devices where all of the Google services can be found, downloaded and installed on the device after it has been sold.
• Apptoide is from Portugal so there will be no issue with Huawei using it.
• This is a viable workaround for this problem, but research has long shown that being installed at the factory makes services work better, offer easier set-up and they can be set by default.
• There is also a considerable risk that users will not understand this subtlety and will simply see a device with no Google services and rule it out in favour of the many other alternatives that do have Google.
• Consequently, I think that restoring Google services to its devices has to be priority number one for Huawei as any other alternative could very well result in a loss of half of its smartphone business.
• Huawei has just launched its latest Honor devices which have Google services on them and so I continue to believe that Huawei has around 90 days to fix this problem before it starts to hurt financially.
• This is crucial as a stoppage in shipments and availability may also damage user confidence in the brand, leading buyers to stay away.
• Unfortunately for Huawei, there are plenty of perfectly good alternatives to Huawei smartphones which are available at excellent prices.
• The potential main beneficiary would be Samsung.
• This is because it has the brand, scale and the presence to ramp up supply and distribution to ensure that there are plenty of Samsung products to meet demand should Huawei fall by the wayside.
• This has not been priced into Samsung’s shares in any way making Samsung a very interesting stock to consider when looking for ways to offset the potential negative implications of a protracted trade war.